In general terms a route-to-market (RTM) is the way a company brings the right products to the right point of sales at the right time. The RTM is the pipeline through which the company flows goods in one direction (supplier to customer), and the payments generated by them in the opposite direction (customer to supplier). In simple terms, a company could have the best product or service in the world, but it will fail if the company does not put the product or service in front of the right customers.
Historically, the RTM core responsibility was to distribute a product from a depot to as many points of sales with a regional or national focus. However, the scope of RTM has expanded to a globalized market with several distribution channels where the market strategy is aligned with the distribution strategy in order to meet the desired product penetration quota and service the defined market niche. Therefore, nowadays excellence in product or service distribution (RTM) depends on the distribution focus and market strategy:
- Numeric distribution: suited for a mass market strategy, with significant volume from several channels with a focus to be in every outlet possible to make the product available to the widest possible consumer base.
- Weighted distribution: suited for more specific niche market strategy, with a focus to be in a smaller number of outlets that are frequented by specific & recurrent customers that fit the targeted customer segments, i.e. ‘luxury’ products.
Best practice RTM harmonizes the needs and competencies of sales, marketing and distribution areas in a company, both internal and outsourced, where the relation is based on partnership and sell-out, where the distributor role and responsibility is clearly defined and communicated, the goals are known and pursued, and the requirements for an effective RTM platform are met:
- Market driven: the RTM processes are designed market-back to address the customer and consumer needs.
- Coherent: the RTM platform is aligned and integrated with the company’s overall customer service framework (from order processing, to delivery and invoicing).
- Balanced: the RTM framework balances the commitment to meet the main business priorities - customer needs & preferences, revenue growth and cost-to-serve.
- Flexible & agile: the RTM design is flexible and agile enough to be improved or adjusted based on the changing market conditions, the results obtained and the customer’s feedback.
Because of the development of an increasingly integrated global economy market with very different distribution channels (traditional trade, modern trade, wholesales, on-line trade, etc.), RTM operations have become the key factor to deliver the right goods, to the right point of sales in the right form, quantity and time, making RTM an excellent candidate for Lean solutions that increase quality and lead time while at the same time enabling sustainable cost reductions.
The biggest challenge for today’s CPG (consumer packaged goods) and FMCG (fast moving consumer goods) RTM managers is to enable the brand growth through better sales rates at the lowest possible cost, and hence, profitable growth achievement.
Applying Lean to the RTM operations ensures that companies gain a competitive edge by:
- Improving S&OP processes: by setting standardized processes, improving forecasting and demand planning accuracy, managing product mix complexity, managing market seasonality, reducing production variability, integrating different departments into the strategy and tactical plan definition and defining the proper leading and success KPIs.
- Increasing revenue without sacrificing profit by defining the correct processes to reduce supply chain costs: improving productivity and customer service without increasing operational costs and reducing operating capital.
- Defining the correct solution for the distribution:
- Self-owned: the company owns distribution centers and vehicle fleet.
- Outsourced: the company outsources distribution center management and vehicle fleet management.
- Partially outsourced: the company outsources only parts of the operations, either by distribution channel or type of operations.
- Managing human resource issues by defining the proper organization size, roles, responsibilities and making staff effectiveness transparent and quantifiable.
- Enhancing the stock-keeping and stock monitoring capability by implementing the FIFO (first-in-first-out) & FEFO (first-expiry-first-out) principles, defining robust processes and standardizing them across the distribution network.
- Optimization of resources usage by defining better routing solutions to gain access to remote places without compromising the operating cost and the product viability.
- Managing the constantly increasing complexity of the market by improving flexibility and showing high change-adaptability to know and meet the evolving customers demands
Waste in RTM processes can be identified, classified and minimized in the same way as waste in manufacturing as well as create tremendous savings potential. Lean principles, kaizen methods and reengineering approaches can be applied in every phase of the supply chain. The right Lean solutions can improve product delivery quality, reduce lead-time and reduce working capital.
With all regional social and consumer trends changing, the RTM is facing a constant increase of market complexity, product commoditization, technology interfacing and pressure to deliver a service differentiation that engages the company to the market, therefore identifying and correcting the seven types of waste is necessary:
- Transportation: unnecessary transports that result in added cost and lower productivity such as out-of-route stops or excessive returns management.
- Inventory: Any activity that results in excess – or lack – of inventory being positioned in a location where needed. An example of this is pushing the product into the distributor or the channel without taking into account the sell-out of the goods.
- Motion: this encloses any unnecessary movement of people, such as walking, reaching or stretching, due to unoptimized loading layouts or lack of material handling resources, like pallet-jacks, lift trucks or picking lists including out of stock items.
- Waiting / delay: people, systems and material delays due to badly integrated processes, such as delays of loading and unloading at the distribution depot or at the customer site, e.g. sales van queuing in front of sales depot for being loaded / off-loaded due to poorly assigned time windows for sales vans sub-groups.
- Overprocessing / overproduction: any duplicated efforts that may be caused by poorly defined processes or responsibilities between the distributor and the principal, e.g. sales van driver is loading the trade shelves himself without following the shelf planogram and later the merchandisers have to adjust the product according to planogram.
- Defects: activities that cause rework, returns or adjustments, such as: mislabeled orders delivered at wrong facilities, incorrect documentation or even wrongly balanced loads that result in expired materials in the delivery vans.
- Use of space: any use of space that is less than optimal, accordingly to the measure and route, e.g. inefficient van loading planograms or inadequate retail displays design.
Designing and implementing Lean RTM processes can have a great impact on sales and profit growth. By approaching the waste focus areas mentioned above with Lean tools, some of the opportunities that come by reducing lead times, increasing quality and reducing costs in RTM include:
- Reduction in order handling, loading and unloading time in at the distribution depot or / and the customer site.
- Increased value adding activities and customer ‘face-time.'
- Reliability of the information to coordinate demand and supply of goods.
- Reduction in stock variability, stock-outs and excess stock carry-out at the depots, the distribution centers and the customer sites.
- Increased flexibility to approach and subdue ever changing market conditions and clients specifications without needing to spend money to achieve it.
We implement Lean Solutions in RTM functions in a similar way to other supply chain solutions addressing the challenges without sacrificing neither quality, nor speed to market while at the same time significantly reducing the costs.
Implementing process changes, van loading and unloading times can drop to 50% of the actual processing time, enabling a 20% to 30% increase of customer visits / drops
Optimizing the van layout may increase the van filling rate up to 25% and customer order picking times by up to 60%
A correct classification of the outlets regarding their characteristics reduces up to 30% the stock carry-over and up to 80% the stock returns
Implementing stock controlling processes and RFID increases the inventory control up to 99% accuracy
Implementing standardized processes to control stock at all the stages of the supply chain increases the stock turnover by up to 80%, reducing the total stock carry over and operating capital needs by up to 50%
Specializing the service per channel, optimizing the van filling rate, and the routing, decreases by 15 to 20% the transportation costs, whilst reducing also the ecological impact
Optimizing the back-office processes enables a 20% to 40% rationalization of the FTE usage